How to Prepare a Buffer for More Rate Increases

Rate increases are similar to taking off in a plane. Sure, it's a little nerve-racking, but as long as you've gone through your pre-flight inspection, have a well-serviced aircraft, have some contingencies (a buffer! ), and have a handy co-pilot (us! ), you should be fine.

As you are probably aware, the Reserve Bank of Australia (RBA) raised the official cash rate by 25 basis points to 0.35 % earlier this month in response to elevated inflation concerns.

While this was the first cash rate increase since November 2010, RBA Governor Philip Lowe was eager to warn mortgage holders that more hikes were on the way.

“The Board is determined to doing everything possible to ensure that Australia’s inflation returns to target over time.” This will necessitate a further increase in interest rates in the coming months,” Governor Lowe stated.

So, when may we expect more interest rate hikes?

According to the Commonwealth Bank, the RBA will raise the cash rate to 1.35 % by the end of the year.

This might imply four further 25-basis-point increases in June, July, August, and November 2022.

Fortunately, according to the findings of a recent Money Matchmaker survey, eight out of ten borrowers have built up a financial buffer, and nearly two-thirds are prepared to face a 0.5 % or more rate increase.

According to APRA analysis, the average sum in mortgage offset accounts is currently nearly $100,000, up about $20,000 since the outbreak began in March 2020.

How your helpful co-pilot can assist you in establishing a buffer account?

As evidenced by this month’s RBA cash rate increase, banks are quick to pass on rate increases for mortgages but not so quick for savings accounts.

As a result, one approach to prepare for this forthcoming period is to consider adding an offset account to your house loan.

In a nutshell, an offset account is a typical transaction account that is tied to your house loan.

The benefit is that you only pay interest on the difference between your account balance and your mortgage balance.

Some banks also allow you to have up to ten offset accounts tied to your mortgage, with cards linked to them for ordinary shopping.

This implies that if your lender is quicker to pass on rate increases on your house loan than they are on your savings account, your money in the offset account will work harder for you than it would in a savings account.

Furthermore, by accumulating extra funds in your offset account, you will have piece of mind knowing that you have a buffer – in the proper place and ready to go – for future interest rate increases.

So, if you’d want to talk to us about your choices for preparing for any potential rate hikes – whether that’s refinancing, fixing your rate, or opening an offset account – get in contact with us right away.

To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at

Disclaimer: The content of this article is general and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your situation and may not be relevant to circumstances. Before taking any action, consider your particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent.

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